Final answer:
The statement is false because for an inferior good, the quantity demanded is driven by income levels rather than the substitution effect, which is related to changes in relative prices. An inferior good sees decreased demand as income increases since individuals can afford higher-quality goods.
Step-by-step explanation:
The statement that an inferior good is one for which the substitution effect is relatively large is actually False. An inferior good is defined as a good where the quantity demanded decreases as income rises, and conversely, quantity demanded increases as income falls. The substitution effect refers to the change in consumption patterns due to changes in the relative prices of goods when income and overall satisfaction level are held constant. With inferior goods, the key behavioral pattern is that as people's income rises, they tend to purchase less of the inferior good because they can afford better alternatives.
For an inferior good, the income effect, which describes how changes in income influence purchasing power and thus quantity demanded, is more relevant. This is because as income rises, instead of substituting the inferior good for a more expensive one due to a relative price change, individuals simply choose to buy less of the inferior good due to the increase in their purchasing power and potentially switch to higher-quality goods.